(d) income consisting of premiums (other than life assurance premiums) in respect of insurance (other than reinsurance) where any of the following conditions are satisfied at the time the policy was entered into:
(i) any insured person was a Part X Australian resident, and the policy was not entered into in connection with a business carried on by the person at or through a permanent establishment of the person in a listed or unlisted country;
(ii) any insured property was situated in Australia;
(iii) any insured event was an event which could happen only in Australia;
(e) income consisting of premiums in respect of reinsurance, if:
(i) the insurer whose risks are directly covered by the reinsurance was a Part X Australian resident at the time the policy was entered into; and
(ii) the policy was not entered into in connection with a business carried on by the insurer at that time at or through a permanent establishment of the insurer in a listed or unlisted country;
(f) income consisting of premiums in respect of reinsurance, if:
(i) the insurer whose risks are directly covered by the reinsurance was not a Part X Australian resident at the time the policy was entered into; and
(ii) the policy was entered into in connection with a business carried on by the insurer at that time at or through a permanent establishment of the insurer in Australia;
(g) income of the company covered by subsection (1A).
(1A) Income of the company is covered by this subsection if:
(a) it is income from the provision of services by the company to an entity under a scheme (within the meaning of the Income Tax Assessment Act 1997); and
(b) the entity is an associate of the company; and
(c) those services are received by another entity; and
(d) the other entity satisfies either of these requirements:
(i) the other entity was a Part X Australian resident at the time the income was derived, and the services were not received in connection with a business carried on by the other entity at that time at or through a permanent establishment of the other entity in a listed or unlisted country;
(ii) the other entity was not a Part X Australian resident at the time the income was derived, and the services were received in connection with a business carried on by the other entity at that time at or through a permanent establishment of the other entity in Australia; and
(e) the income would be tainted services income if:
(i) this section did not include paragraph (1)(g) or this subsection; and
(ii) the income were from the provision of those services by the company to the other entity; and
(f) a reasonable person would conclude (having regard to all the circumstances) that the scheme was entered into or carried out for a purpose, other than an incidental purpose, of enabling entities satisfying the requirements of subparagraph (d)(i) or (ii) to receive those services.
(2) The tainted services income of a company of a statutory accounting period does not include income from the sale of goods by the company.
(3) Where:
(a) a company provides services directly related to goods sold by the company; and
(b) either of the following conditions is satisfied:
(i) the company substantially altered the goods with the result that the market value of the goods was substantially enhanced;
(ii) the company did not acquire the goods from another entity;
the tainted services income of the company does not include income from the provision of those services.
(4) Where a company provides any of the following services:
(a) drinks and meals;
(b) accommodation in a hotel, motel, guest‑house or similar place;
(c) the provision of, or of the use of facilities for, entertainment, recreation or instruction;
the tainted services income of the company does not include income from the provision of those services.
(5) The tainted services income of a company of a statutory accounting period does not include the passive income of the company of the statutory accounting period.
(6) The tainted services income of a company of a statutory accounting period does not include income where:
(a) the income is not passive income of the company of the statutory accounting period; and
(b) the income is covered by any of the following subparagraphs:
(i) income derived by the company by way of rent in respect of a lease of land;
(ii) royalties derived by the company;
(iii) income derived from carrying on a business of trading in assets;
(iv) gains that accrued to the company in the statutory accounting period in respect of the disposal of assets;
(v) gains that accrued to the company in the statutory accounting period from disposing of commodity investments;
(vi) currency exchange gains that accrued to the company in the statutory accounting period;
(vii) in the case of a life assurance company—an amount that, apart from subsection 446(2), would be passive income of the company of the statutory accounting period;
(viii) in the case of a general insurance company—the amount that, apart from subsection 446(4), would be passive income of the company of the statutory accounting period.
(7) If, apart from this subsection, services are provided to 2 or more entities acting jointly, this section is to be applied successively as if each such entity were the sole recipient.
Subdivision F—Special rules relating to AFI subsidiaries carrying on financial intermediary business
449 AFI subsidiaries—interest income
(1) The passive income of a company of a statutory accounting period does not include tainted interest income where, at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business.
(2) The tainted services income of a company of a statutory accounting period does not include income where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the income consisted of interest, or a payment in the nature of interest, derived by the company from a loan made in the course of carrying on that business;
(c) the loan was made to the Commonwealth.
(3) The passive income, or the tainted services income, of a company of a statutory accounting period does not include income where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the income consisted of interest, or a payment in the nature of interest, derived by the company from a deposit with a central bank.
(4) In the application of subsection 448(1) to income derived by a company, where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the income consisted of interest, or a payment in the nature of interest, derived by the company from a loan made in the course of carrying on that business;
a reference in that subsection to the time the income was derived is to be read as a reference to the time the loan was made.
450 AFI subsidiaries—asset disposals and currency transactions
(1) The passive income, or the tainted services income, of a company of a statutory accounting period does not include income where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the income was derived from carrying on a business of trading in any or all of the following tainted assets:
(i) non‑share futures contracts;
(ii) non‑share forward contracts;
(iii) interest rates swap contracts;
(iv) currency swap contracts;
(v) forward exchange rate contracts;
(vi) forward interest rate contracts;
(vii) a right or option in respect of such a contract;
(viii) any similar financial instrument.
(2) For the purposes of this Part, in determining the net gains that accrued to a company in a statutory accounting period in respect of the disposal of tainted assets, where the following conditions are satisfied in relation to the disposal of a tainted asset:
(a) at the time of the disposal of the tainted asset, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the disposal was made in the course of carrying on that business;
(c) the tainted asset is covered by paragraph (1)(b);
the disposal of the tainted asset is to be disregarded.
(3) For the purposes of this Part, in determining the net tainted currency exchange gains that accrued to a company during a statutory accounting period, where the following conditions are satisfied in relation to a particular currency exchange gain or a particular currency exchange loss:
(a) at the time the currency exchange gain or the currency exchange loss, as the case may be, was realised, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the currency exchange gain, or the currency exchange loss, as the case may be, was realised:
(i) in the course of carrying on that business; and
(ii) in the course of currency dealing;
that currency exchange gain or that currency exchange loss, as the case requires, is to be disregarded.
(4) The passive income of a company of a statutory accounting period does not include income where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the income was derived from carrying on a business of trading in either of the following tainted assets:
(i) loans (including deposits with a bank or other financial institution);
(ii) debenture stock, bonds, debentures, certificates of entitlement, bills of exchange, promissory notes or other securities.
(5) For the purposes of this Part (other than subsection (7)), in determining the net gains that accrued to a company in a statutory accounting period in respect of the disposal of tainted assets, where the following conditions are satisfied in relation to the disposal of a tainted asset:
(a) at the time of the disposal of the tainted asset, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the disposal was made in the course of carrying on that business;
(c) the tainted asset is covered by paragraph (4)(b);
the disposal of the tainted asset is to be disregarded.
(6) For the purposes of this Part, the tainted services income of a company of a statutory accounting period includes income from trading in assets where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the assets are covered by paragraph (4)(b);
(c) the assets were acquired from, or disposed of to, another entity where either of the following conditions are satisfied at the time of the acquisition or disposal:
(i) the entity was a Part X Australian resident, and the acquisition or disposal was not in connection with a business carried on by the entity at or through a permanent establishment of the entity in a listed or unlisted country;
(ii) the entity was not a Part X Australian resident, but the acquisition or disposal was in connection with a business carried on by the entity at or through a permanent establishment of the entity in Australia.
(7) For the purposes of this Part, the tainted services income of a company of a statutory accounting period includes net gains that accrued to the company in the statutory accounting period in respect of the disposal of tainted assets, where the following conditions are satisfied:
(a) at the time of the disposal of the tainted asset, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the disposal was made in the course of carrying on that business;
(c) the tainted asset is covered by paragraph (4)(b);
(d) the tainted asset was acquired from, or disposed of to, another entity where either of the following conditions are satisfied at the time of the acquisition or disposal:
(i) the entity was a Part X Australian resident, and the acquisition or disposal was not in connection with a business carried on by the entity at or through a permanent establishment of the entity in a listed or unlisted country;
(ii) the entity was not a Part X Australian resident, but the acquisition or disposal was in connection with a business carried on by the entity at or through a permanent establishment of the entity in Australia.
(8) For the purposes of this Part, the tainted services income of a company of a statutory accounting period includes factoring income where the following conditions are satisfied:
(a) at the time the income was derived, the company was an AFI subsidiary whose sole or principal business was financial intermediary business;
(b) the debt to which the factoring income relates was acquired from, or disposed of to, another entity where either of the following conditions are satisfied at the time of the acquisition or disposal:
(i) the entity was a Part X Australian resident, and the acquisition or disposal was not in connection with a business carried on by the entity at or through a permanent establishment of the entity in a listed or unlisted country;
(ii) the entity was not a Part X Australian resident, but the acquisition or disposal was in connection with a business carried on by the entity at or through a permanent establishment of the entity in Australia.
Subdivision G—Substantiation requirements
451 Active income test—substantiation requirements for company
(1) The substantiation requirements for a company in relation to a statutory accounting period are as follows:
(a) the company must keep (in Australia or elsewhere) such accounting records (in this section called the general accounting records) as correctly record and explain the matters, transactions, acts and operations that are relevant to the preparation of the recognised accounts of the company for the statutory accounting period;
(b) the general accounting records must be so kept as to enable the recognised accounts of the company for the statutory accounting period to be prepared;
(c) the company must retain, for the retention period in relation to the statutory accounting period:
(i) the recognised accounts of the company for the statutory accounting period; and
(ii) the general accounting records of the company for the statutory accounting period;
(d) the company must comply with a request made in a notice given to it under subsection (2) in relation to the statutory accounting period.
(2) An entity that is an attributable taxpayer in relation to a company, being a CFC, as at the end of a statutory accounting period of the company may, by notice in writing served on the company (in this section called the taxpayer’s notice), request the company:
(a) to give to the taxpayer, within the period and in the manner specified in the taxpayer’s notice, copies of such of the following documents as are specified in the notice:
(i) the recognised accounts of the company for the statutory accounting period;
(ii) the general accounting records of the company for the statutory accounting period; or
(b) to prepare a document containing particulars of the basis of the calculation of the tainted income ratio of the company for the statutory accounting period and to give to the taxpayer, within the period and in the manner specified in the taxpayer’s notice, a copy of that document; or
(c) if the company was a partner in a partnership at any time during the statutory accounting period:
(i) to obtain from the partnership, in accordance with a request made in a notice given to the partnership by the company under subsection 452(2), copies of specified documents; and
(ii) to give those copies to the taxpayer, within the period and in the manner specified in the taxpayer’s notice.
(3) The period specified in the taxpayer’s notice must end:
(a) later than 60 days after the date of service of the taxpayer’s notice; and
(b) before the end of the retention period in relation to the statutory accounting period.
(4) Upon written application made by the taxpayer within the period specified in the taxpayer’s notice, the Commissioner may, by notice in writing served on the taxpayer, extend the period specified in the taxpayer’s notice.
(5) Where:
(a) an application under subsection (4) is made before the end of the period specified in the taxpayer’s notice; and
(b) at the end of the period, the Commissioner has not notified the taxpayer of the Commissioner’s decision on the application;
the following provisions have effect:
(c) if the Commissioner’s decision is not notified to the taxpayer before the end of the retention period in relation to the statutory accounting period concerned—the Commissioner is taken to have extended the period under subsection (4) to the end of the retention period;
(d) if the Commissioner’s decision is notified to the taxpayer before the end of the retention period in relation to the statutory accounting period concerned—the Commissioner is taken to have extended the period under subsection (4) to the end of the day (in this subsection called the decision day) on which the Commissioner’s decision is notified to the taxpayer;
(e) if the Commissioner decides to extend the period—subject to subsection (6), the extended period must end after the decision day.
(6) The period as extended under subsection (4) must end before the end of the retention period in relation to the statutory accounting period.